Backorder Meaning & Management
Backorder meaning: When a customer places an order for an item that is not currently in stock, the customer may be informed it is on backorder and can still make payment with the promise of future delivery. Items available on backorder may indicate a date when they will be back in stock. These items will be planned for receipt from the supplier and a customer delivery date will be determined based on supplier lead time.
Backorders occur for several different reasons:
- Demand exceeds supply due to seasonal trends, marketing, or emergency
- Bad weather or other road conditions impede timely transportation
- Political upheaval in a foreign country (in cases of international imports)
- Poor planning around lead time from supplier
- Supplier production/delivery problems
How you handle backorders is important to perceived customer service. Customers are generally happy with backorders provided they know what is going on, so, as with all customer facing matters – communication is key! If you frequently frustrate customers by making them wait and/ or communication is poor, you risk losing that customer and your reputation. Bad news always travels faster than good, and a badly handled backorder situation could soon be common knowledge in this connected world.
We all know it is vital to build customer loyalty; statistics show it is ten times more expensive to sell to a new customer (win a new customer) than it is to sell to an existing customer.
These days you are competing with the best in the world in your own back-yard. So how you look after your customers is vital, and indeed common knowledge.
Some customers will accept that they must wait for backordered items; others (e.g. holiday shoppers) may look elsewhere if their need is immediate. The best way to handle backorders is not to have any. Managing your business in a joined-up and coherent manner is important. This means having a good information system is of paramount importance. You need good, timely and accurate data for decision making. Having a system that is aware of seasonal trends is important for any business selling products, as is managing your supplier performance. Running out of products at a time when the selling potential is greatest is unforgivable, unacceptable and must be avoided at all costs.
An essential part of backorder management is managing inventory flow around supplier lead time and adapting purchase order behavior according to real-time information.
What does “backordered” mean for your business?
Everyone has backorders. The question is how many, and how you manage them. What is it like in your business? Is it crippling you or is it under control? Your backorder definition may vary from your competitor’s. What can yours handle? The answer to that question will determine if your items are on backorder vs. out-of-stock. If your lead times are long, you may not want to complete the sale when you don’t have the inventory on hand. If you are able to fulfill orders before customers complain and you aren’t losing money, it’s manageable. But if the quantity of shortages grows and you are buying materials at higher costs than calculated in price paid by the customer, you’ve got to get the situation under control.
Are you relying on spreadsheets that don’t reflect the real world? Do you have multiple spreadsheets across departments? If you do, you may well be propagating multiple versions of the truth. In manufacturing backorder reports are important tools for assessing the situation so to quickly rectify it.
SOS Inventory is the answer.
SOS Inventory software will unify information from all departments – purchasing, warehousing, sales, and accounting – so you always know if you have enough product on hand to satisfy customer demand.
SOS Inventory Purchase Orders Features:
Set a minimum product count to automate reorders from your suppliers when inventory dips to a predetermined low point.
Each sales order line item tracks the quantity ordered and shipped. If an item has not been shipped, it generates a backorder. All backorders can be tracked from the Backorder Report, accessible from the Report Menu.
Order items needed quickly directly from the Reorder Report using a Generate PO action.
SOS Inventory will consolidate sales orders to generate a single purchase order.
If required inventory amounts cannot be satisfied by a single supplier, multiple vendors can be sent purchase orders.
If multiple items are required from the same supplier, they can easily be combined on the same purchase order.
Set email alerts for low item inventory
Generate purchase orders manually or automatically
Set maximum stock levels
SOS Inventory will automatically update inventory counts when a sale takes place. All inventory transactions are centralized, keeping information uniform no matter which department is accessing it.
The backorder meaning for your business could be dire or inconsequential depending on how effectively you mitigate and manage the problem. Having the proper tools can make all the difference.